Concerns Over Unsecured Loans In Retail Lending Despite Asset Quality Gains: RBI

ENA Sectors 2024-12-31 14:41:40 New Delhi, Dec 31 (KNN) The Reserve Bank of India's latest Financial Stability Report has highlighted concerns about private banks' write-offs potentially masking deteriorating asset quality in the retail loan segment, despite an overall improvement in the banking system's asset quality. The report indicates that while the gross non-performing asset (GNPA) ratio for retail loans remained stable at 1.2 percent in September 2024, with special mention accounts showing improvement, the unsecured lending segment displayed a slightly higher GNPA ratio of 1.7 percent. Small finance banks are experiencing significant challenges in their retail lending portfolios, with a GNPA ratio of 2.7 percent and an unsecured GNPA ratio reaching 4.7 percent. The fresh accretion of NPAs in retail loan portfolios has been predominantly driven by slippages in the unsecured loan book, accounting for 51.9 percent of NPAs as of end-September 2024. The banking system's liquidity coverage ratio has declined to 128.5 percent in September from 135.7 percent a year ago, with public sector banks experiencing a more pronounced decrease to 127.4 percent from 142.1 percent. Private banks maintained a marginally lower ratio at 126.1 percent. The report also noted significant changes in banks' deposit profiles, with a shift from low-cost current account savings account deposits to term deposits, particularly in higher interest rate brackets, reflecting increased competition for savings and investor preference for higher-yielding financial products. Credit growth patterns show services and personal loans leading overall expansion, with credit card receivables maintaining robust growth. While personal loan growth has halved from previous high levels, it remains broad-based, with housing loans emerging as the primary contributor. Industrial credit, though accelerating, continues to lag behind other major sectors. The overall asset quality of scheduled commercial banks has shown improvement, with the GNPA ratio reaching a 12-year low of 2.6 percent in September, while the Net NPA ratio held steady at 0.6 percent. However, the half-yearly slippage ratio saw a slight increase to 0.7 percent. The report particularly emphasised the need for careful monitoring of credit card loans, which showed the highest growth in the retail segment and displayed a marginal increase in NPAs across bank groups. (KNN Bureau) 40448 https://knnindia.co.in/news/newsdetails/sectors/concerns-over-unsecured-loans-in-retail-lending-despite-asset-quality-gains-rbi 2024-12-31 14:41:40 knnindia.co.in Concerns Over Unsecured Loans In Retail Lending Despite Asset Quality Gains: RBI